Monday, November 2, 2009

You are in a conversation with an acquaintance. The conversation turns to politics. You make it clear you are for capitalism, laissez-faire capitalism. Eloquently, you explain the case for capitalism in terms of man’s rights, the banning of physical force and the limitation of government to the function of protecting individual freedom. It seems clear, simple, unanswerable.

But instead of seeing the “light-bulb look” on the face of your acquaintance, you see shock, bewilderment, antagonism. At the first opportunity, he rushes to object:

"But government has to protect helpless consumers from the power wielded by huge multinational corporations.”

Or: “Freedom is impossible under strict capitalism: people must have jobs in order to live, and they are therefore forced to accept the employer’s terms.”

Or: “In a complex industrial society such as ours, government planning must replace the anarchy of the marketplace.”

Does any of this sound familiar? It is a battle that is all but new. In fact it represents the fictional battle that ensues throughout one of the greatest pieces of literature ever written (my opinion). The literature I am speaking of is Atlas Shrugged by Ayn Rand. The book is controversial, however in my opinion I think that if you put your philosophical beliefs aside you will appreciate the mastery with which Rand has interwoven politics, business, philosophy, love, religion, etc all within an amazingly entertaining fictional tale.

I recently began following The Ayn Rand Center on Twitter which posts publications in line with Rand's philosophy. One that I read the other day was entitled "The Dollar and the Gun." It was written by Harry Binswanger as published in Why Businessmen Need Philosophy back in 1983. The work centers on many of the central premises of Atlas Shrugged, specifically the distinction between economic and political power.

"Political power” refers to the power of government. The special nature of that power is what differentiates government from all other social institutions. That which makes government government, its essential attribute, is its monopoly on the use of physical force. Only a government can make laws—i.e., rules of social conduct backed up by physical force. A “government” lacking the power to use force is not a government at all, but some sort of ugly pretense, like the United Nations.

A non-governmental organization can make rules, pass resolutions, etc., but these are not laws precisely because they cannot be enforced on those who choose not to deal with that organization. The penalty for breaking the rules of e.g., a fraternal organization is expulsion from the association. The penalty for breaking the law is fines, imprisonment, and ultimately, death. The symbol of political power is a gun.

A proper government points that gun only at those who violate individual rights, to answer the physical force they have initiated, but it is a gun nonetheless.

Economic power, on the other hand, is the ability to produce material values and offer them for sale. E.g., the power of Big Oil is the power to discover, drill and bring to market a large amount of oil. Economic power lies in assets—i.e., the factors of production, the inventory and the cash possessed by businesses. The symbol of economic power is the dollar.

A business can only make you an offer, thereby expanding the possibilities open to you. The alternative a business presents you with in a free market is: “Increase your well-being by trading with us, or go your own way.” The alternative a government, or any force-user, presents you with is: “Do as we order, or forfeit your liberty, property or life.”

As Ayn Rand wrote, “economic power is exercised by means of a positive, by offering men a reward, an incentive, a payment, a value; political power is exercised by means of a negative, by the threat of punishment, injury, imprisonment, destruction. The businessman’s tool is values; the bureaucrat’s tool is fear.” (Capitalism: The Unknown Ideal, p. 48)

Whether you agree wholeheartedly or are completely opposed to the above line of thinking, the argument should be had. As I was reading through a second time I came across the excerpt below.

In today’s depressed economy where “obscene profits” have turned into (lovely?) losses, the anti-business theme is being played in a new key: the target has shifted to foreign businesses. The equation of the dollar and the gun remains, however. To wit: “Senator Paul Tsongas (D-Massachusetts) believes that the hightechnology challenge from Japan is as serious to the United States’ long-term security as the defense threat posed by the Soviet Union.” (Infoworld, May 30, 1983)

The Soviet Union threatens us with nuclear annihilation. The Japanese “threaten” us with the opportunity to buy cheap, reliable computer parts.

One could point out that the law of comparative advantage, a cornerstone of economic science, dictates that one country’s superior productive ability can only benefit all those with whom it trades; that if Japanese firms can produce computer parts at lower cost than U.S. firms can, then our firms will necessarily have a comparative advantage in some other area of production; that any government intervention to protect some U.S. firms from foreign competition sacrifices other U.S. firms and the public at large to inefficiency, lowering our standard of living. But all this would be lost on the kind of mentality that equates imports with bombs.

Does that sound familiar? It should. Because we aren't far off from the same situation today. Just replace Japan's cheap products with China and add in cheap labor from India and it is one and the same. I really enjoyed the way in which the author employed a Socratic method-esque approach to debating common accusations against capitalism.

It is true that laws protecting rights are a precondition for the production of wealth, but a precondition of production is not production. In enforcing proper laws, the government does not produce anything—it merely protects the productive activities performed by private individuals. Guns cannot create wealth. When a policeman prevents a mugger from stealing your wallet, no value is created; you are left intact, but no better off.

The absence of a loss is not a gain. Ignoring that simple fact is involved in the attempt to portray the government’s gun as a positive, creative factor. For instance, tax relief is viewed as if it were government encouragement. In reality, tax breaks for schools, churches, homeowners, etc., are reduced penalties, not support. But socialist Michael Harrington writes:

The Internal Revenue Code is a perverse welfare system that hands out $77 billion a year, primarily to the rich. The special treatment accorded to capital gains results in an annual government benefit of $14 billion for high rollers on the stock exchange. (Saturday Review, November 1972)

Harrington equates being forced to surrender to the IRS one quarter of your earnings (the tax rate for capital gains), with being given a positive benefit by the government. After all, the IRS could have taken it all.

Just as the absence of a loss is not a gain, so the absence of a gain is not a loss. When government handouts are reduced, that is not “balancing the budget on the backs of the poor”—it is a reduction in the extent to which the poor are balanced on the backs of the rest of us.

And:

I will conclude with another scenario. Imagine that you survive a shipwreck and have to steer your lifeboat to one of two desert islands where you will have to remain for several years. On each island there is one inhabitant. The western island is the property of a retired multi-millionaire, who lives there in high luxury, with a mansion, two swimming pools and all the accoutrements of great wealth. The eastern island is inhabited by a propertyless beachcomber who lives in rags and eats whatever fruit and fish he can scrounge up. Let’s add that the millionaire is an egoist and strict capitalist, while the beachcomber is a saint of altruism who will gladly share his mud hut with you. Would you, or anyone, head east to escape being “exploited” by the millionaire’s economic power?

As I said earlier, you may not agree with the premise of the writing but I definitely recommend reading the article in its entirety here. I would love to hear comments as this is a polarizing topic amongst many.

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